Directors: Protection from removal
Companies Act 2006, sec168 provides that any director can be removed from office by a resolution of the shareholders, and we offer a service for this.
An individual director, or the directors collectively can be protected from being removed in this way by:
- appropriate provisions in the company's articles
- being a party to a shareholders' agreement under which the parties agree not to use their voting power to remove each other from office
- having a service contract. This will not prevent the director from being removed, but may provide for compensation if s/he is removed. The compensation payable may or may not be sufficient to discourage the shareholders from removing him
- if the director is a shareholder his or her removal may of itself be unfairly prejudicial conduct, or may be part of a larger course of such conduct, which may give the director a right of redress. We do not deal with such contentious matters which require solicitors' advice.
Protection from removal in the articles
While sec168 makes it clear that a director can be removed by an ordinary resolution of the shareholders (i.e. by a simple majority vote), it was established in the case of Bushell v. Faith that a clause which provides enhanced for voting rights on such a resolution for the director whose removal is sought will be effective. Such a clause can be very important. Consider, for example, a company with three equal shareholder/directors. If two of the three fallout with the third, they have the voting power to remove him or her from office. A 'Bushell v. Faith clause' in the articles can prevent this. Deciding whether to include such a clause should be part of a wider review of the articles, as there are other ways in which the minority shareholder can be protected. Wider protection can be gained by having an appropriate shareholders' agreement.
A shareholders' agreement is a contract between all or some of the shareholders in a company that they will use their voting power for certain agreed purposes. A very common term of such an agreement is that the parties will keep each other in office as directors, though such agreements usually include a wide range of provisions. We provide a shareholders' agreement service.
- altering the company's articles. See our services for reviewing the existing articles, drafting appropriate provisions, effecting the alterations
- providing a shareholders' agreement.
See our benchmark prices for these services.